The civil charges brought against investment bank Goldman Sachs for allegedly defrauding mortgage investors could turn criminal.

Federal prosecutors with the U.S. attorney’s office in Manhattan are reportedly investigating the Wall Street fixture for possible criminal misconduct in dealings involving an investment vehicle and transactions related to subprime residential mortgages.

As previously reported on DSNews.com, the Securities and Exchange Commission (SEC) has filed civil charges against Goldman Sachs for allegedly misleading investors about the performance of collateralized securities backed by subprime mortgages that the firm bet on to fail. Investors are said to have lost more than $1 billion.

The SEC has referred its investigation to the Department of Justice, which may opt to pursue criminal prosecution.

But according to the Washington Post, the probe by Manhattan U.S. attorney’s office — which is known for aggressively investigating financial fraud cases — was not based on an SEC referral and was underway before the SEC announced the civil case April 16. The Federal Bureau of Investigations (FBI) is also involved in the investigation.

Goldman Sachs has denied any wrongdoing from the start, and is said to be mounting a strong defense against the accusations.

The company’s CEO Lloyd C. Blankfein said in testimony on Capitol Hill this week, “During the two years of the financial crisis, while profitable overall, Goldman Sachs lost approximately $1.2 billion from our activities in the residential housing market. We didn’t have a massive short against the housing market and we certainly did not bet against our clients.”

Daniel Sparks, former head of Goldman Sachs mortgage department, told a Senate subcommittee, “At the time we did those deals, we expected those deals to perform.”

But, the Senate Permanent Subcommittee on Investigations released several internal documents last week obtained from the Wall Street firm that contradict Sparks’ testimony. Communications between the firm’s employees reveal it made “some serious money” betting against the housing market, as Sachs’ own top execs’ phrased it.

Prompted by the SEC’s action, the Financial Services Authority in the United Kingdom says it has opened its own investigation into Goldman Sachs’ U.K. operations.